Key Metrics Series: Entrenched Board

Many investors believe that long-tenured directors may form relationships with the company and its management that can compromise their independence. Similarly, some investors support mandatory retirement ages for directors. GMI Ratings believes that while individual directors can perform well at any age and stage of their service, a board with a concentration of long-tenured and/or aging directors may raise entrenchment concerns. This is particularly the case if company performance is poor and directors are not easily accountable to shareholders (for example, due to governance structures such as board classification and plurality election standards). GMI Analyst’s Entrenched Board metric allow subscribers to identify firms where director tenure and/or age may be a concern, as a spur to further investigation of the company’s governance quality.